How do you ‘Brexit’ a long lease?

Nick Leavey, Partner and Head of Commercial Property at Coffin Mew, discusses the leasing challenges that could arise for commercial tenants and landlords, post-Brexit

 

News website Politico picked up the fact, buried in a European Parliament Report, that the EU’s European Medicines Agency (“EMA”) entered into a 25 year, €500m lease of premises in Canary Wharf, London, in 2014, which did not include a break clause.

Whilst the absence of a break clause may not have seemed like a big deal at the time the lease was negotiated and completed, the UK has since voted for Brexit.

Subsequently, the EU has stated its intention to relocate UK-based institutions, the EMA and the European Banking Agency, to a remaining EU member state as part of the Brexit process, despite the fact that the EMA lease does not actually expire until 2039.

Which raises a very interesting question, how do you ‘Brexit’ a lease?

No doubt lawyers on all sides of the Brexit negotiations will be trawling through the EMA lease, to see whether the EU can find any other way out of it. A negotiated surrender with the landlord may be possible, but is likely to be very costly.

Otherwise, the EMA will be looking for a new tenant to assign the lease to or to sublet the premises. However, with Paris, Frankfurt and other EU cities also vying to attract London-based banks and financial institutions to relocate to the continent, there could be more office space in London available and fewer would-be tenants to take it on.

The EU is not the only commercial tenant to find itself with long term lease commitments which seemed reasonable when first negotiated – after all, the inclusion of a break clause would inevitably have increased the rent payable by the EMA – but which are problematic now.

Many are finding that deals they did not so long ago, look very different in a post-banking crisis, post-Brexit, post-Trump, post-what next? world – and we are now all well advised to try to think the unthinkable in our business negotiations going forward.

Of course, some think that it will take until 2039 to do the Brexit deal, in which case: problem solved.

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